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Not So Fast

Hello everyone. Welcome back to the Mortgage Rundown. Today we are going to talk about what's happening with the Capital Markets.

Well, 2023 is off to a fast start and last week was quite an eventful one, to say the least.

Wednesday was the long-awaited FOMC meeting where the Federal Reserve raised overnight rates again by 25bps to the range of 4.50 to 4.75%. Normally you would see mortgage rates rise with such an event. But as we have seen with Chair Powell, after the announcement and during the Q&A we once again saw mortgage rates drop by a substantial amount.

Jerome Powell leaves the market feeling very dovish; that the campaign to raise rates in order to defeat inflation will be quickly followed by a reduction in rates later this year. At least that's what the market continues to read from him.

However, that thought was pushed aside very quickly after Friday's jobs report was released showing the economy added 517k jobs, which was well above the estimate of 189k, and the unemployment rate actually fell to 3.4%, the lowest rate since 1969.

This was a huge shock to the entire market as the belief was that inflation was being contained in all sectors, including the jobs market. But after Friday's report, it's very clear that the work is not done on inflation and that the path to 2% inflation is going to take longer than the market expected.

And lastly, yesterday Powell during the Q&A at the Economic Club of Washington DC noted that disinflation has begun but is going to take time. He stressed that if we continue to see a strong labor market or higher inflation reports, then the FOMC will have to do more and raise rates at a higher level than what the market prices in.

So, looking ahead I would stress that the market will be very data-dependent going forward with the likelihood of high volatility around inflation and jobs data. Keep an eye on inflation data next week with the latest CPI data coming out on Valentine's Day. There will be some major market disruptions if the annualized rate is below 6% or above 6.5%.

That's it everyone from the capital markets desk this week. Thank you all for watching and have a great day.